FORUM It’s Euro Move
April 1 1990 by JP Donlon
Sit Geoffrey Howe, U.K. deputy prime minister, addressed American and European CEOs participating in Chief Executive ‘s Beyond 1992 roundtable at a dinner co-hosted by the Centre for Policy Studies at London‘s Carlton Club. Howe’s theme coincided with the roundtable’s exploration of key issues relating to future developments in the European Community, including competition, taxes, and the monetary system.
Sir Geoffrey was Margaret Thatcher’s chancellor of the exchequer, as Britain‘s treasury secretary is called, from 1979 to 1983, and has been a frequent adviser to the Thatcher government on related economic and political issues. Aside from his international economic interests, Sir Geoffrey has been a member of committees investigating hospital abuse, race relations, and women’s rights, and along with his wife, Lady Elspeth, has been actively concerned with social issues.
A lawyer, Sir Geoffrey (b. 1926) studied at Cambridge. He was elected to Parliament in 1964, and was appointed solicitor general in 1970 and knighted the same year. He has served as a director of Sun Alliance & London Assurance Co., AGB Research, and EMI Ltd. In 1983 he became secretary of state for foreign and commonwealth affairs and minister for overseas development, and was appointed deputy prime minister in 1989.
ACHIEVING A SINGLE MARKET
Sir Geoffrey Howe: When this conference was organized about 12 months ago, nobody could have foreseen that the face of Eastern Europe could have changed so radically by 1992, and surely not by 1990. The prospect would have seemed totally ridiculous as little as six months ago.
I just sent a message of congratulations to the new president of Bulgaria the other day. When I met him four or five years ago, I was the first British foreign secretary to visit Bulgaria. We met in the rather somber setting of the Bulgarian Foreign Ministry. Suddenly in the middle of our discussion, a gust of wind blew open the windows and the curtains billowed out across the room. I said lightheartedly: “A wind of change is blowing through Eastern Europe,” echoing Harold Macmillan’s famous phrase in South Africa in 1960. I’m sure neither he nor I imagined that it would blow as strongly as it has blown since then. Of course the bigger problem still lies ahead-the task of sustaining economic reform. When you think of the catastrophic mess that Western governments can make in running their economic policy-and we Westerners are supposed to know what we’re doing-think how much harder it must be when you don’t know what you’re doing.
Liberal economics must be the key to recovery. I recall, with some encouragement, my first visit to Hungary six or seven years ago. On my first day there I was introduced to a professor of economics at the Karl Marx University in Budapest. I realized while we were talking that I was wearing my Adam Smith tie. So I said to this gentleman, “I’m frightfully sorry, if I’d known that I was going to meet a professor of economics at the Karl Marx University, I wouldn’t have dreamt to be so indiscreet as to wear my Adam Smith tie.” To which he replied, “No need to worry at all, my good man, if I had known you were going to wear your Adam Smith tie, I would have worn my Adam Smith sweatshirt.”
I knew at least that his heart was in the right place. The case for liberal economics is just as important there, on a more sophisticated scale, as in what we’re doing in what we used to call Europe-namely, Western Europe. And that brings me to 1992. What is 1992? The achievement of a single market. An area without internal frontiers, with the free movement of goods, services, capital, and people. It’s an enormously important challenge to create a more integrated, more efficient, more competitive economy throughout Europe by pulling down all the formal and the informal barriers to trade.
The first thing to realize about 1992 is that it isn’t an event, it’s a process. It started long before the Lord Cockfield White Paper of 1985 and it will go on long after the first of January 1993. By setting out a program, with a deadline, and by changing the decision-making process through the Single European Act, we are now clearly on course to achieve much of this goal. But 1992 is a dramatization of a process already in play, rather than an innovation. It’s a consolidated extension of existing trends and developments. And 1992 is about taking further the impetus towards internationalization, liberalization, and competition in Europe. It will give power to consumers, give energy to markets, and expand the boundaries of free trade. It responds to the needs of multinationals, but in a way that benefits consumers and society as a whole.
In fact, 1992 evokes the objectives of Magna Carta. If you go back to 1215 and look at Magna Carta, you’ll see two key propositions: the standardization of units of measurement throughout the kingdom and provisions for the freedom of movement of merchants. These are the essential features of a large unified market in which trade and profits can prosper.
In that sense, 1992 doesn’t require dramatic new techniques or new strategies for European or American firms. It’s designed to create a framework which will reward what has worked in the past-good marketing, reliable products, high-grade production engineering, and excellent design. It’s designed to remove any residual featherbedding for the inefficient or the overpaid in all the EC countries.
A European Common Market does not, in itself, either centralize power or decisively promote expansion in the role of the EC. It’s designed to devolve power, not to Brussels, but to market forces and so to the people. Of course to achieve that, it uses the force and authority of Community laws to keep us all tethered to this common mast of economic virtue. The 1992 program represents a common basis of agreement between the political advocates of European unity and the economic advocates of free markets. It brings those two thoughts together. That compromise has been a key to the success of our progress towards a common objective.
All the EC member states now agree that the logic behind 1992 is irrefutable. The skeptical, protectionist mentality, which was once widespread in virtually every country in the Community, is being shattered. Of course there’s room for legitimate hesitation about how far and how fast we go on the social front. Too often, Britain finds itself cast in the role of whipping boy to shield the doubts of other nations. But we in Britain are firmly committed to Europe. We are determined to play a central role in the emerging family of European nations. We believe in the Community and we’re determined to argue from within for European solutions on sensible free-market terms. That’s why we have no doubt that the question is “Europe: Right or Left?” and not “Europe: Right or Wrong?”
THE SPECTER OF FORTRESS EUROPE
In the U.S., there has been a lot of concern about fortress Europe. Americans think that the liberalization of the Community internally might promote and provoke external barriers to trade. That fear is now justly receding. Let me make just three points about this fortress Europe specter. First, the clear majority of the Council of Ministers is firmly committed to free trade, externally as well as internally. And the European Commission itself has been playing a steadily more positive role.
Second, the specter was fueled long before the 1992 goal by the existence of long-standing protective measures in four sectors: agriculture, automobiles, steel and textiles. The situation in the U.S. is not very different. Everything that has occurred in recent years points towards progressive liberalization on each of those fronts. We are moving in the right direction and we welcome the progress that you Americans are making in the same direction, as we too are going towards freer external trade.
Third, the removal of national technical standards and their replacement by common European standards lies at the core of the 1992 program. There still may be some decisions that don’t suit American firms just as there will be some that don’t suit Italian, Dutch, British or German firms. That’s not evidence of discrimination. Very often it is essential and helps in the development of world standards. It will make trade more open and make the European market easier to penetrate from the outside. So 1992 is free trade friendly at home and abroad. Criticism from the U.S. or Japan too often seems to point a finger without looking in the mirror first.
EAST MEETS WEST
I hope 1992 will open and extend a new era of partnerships for all of us, in liberal economic thinking and practice. So 1992 is only one signal of new optimism in Europe that’s risen to meet the hopes of the peoples of the East, as well as the West, forging a new Europe of which we can be proud and of which you can be an effective partner.
Ryal Poppa (StorageTek): Do you see the breakup of the Eastern bloc delaying 1992 or the effect of 1992?
Howe: No, but we need to watch the changes in Eastern Europe, the pace of that change, and its impact on the EC. We need to examine ways of extending the benefits of a liberal market in Europe to the countries of the Eastern bloc without distorting the decision-making structure of the EC.
Robert Dilenschneider (Hill & Knowlton): What impact will 1992 have on the economies of the Third World?
Howe: The spirit of economic liberalism embodied by 1992 clearly demonstrates to Third World countries that this is the right way to run an economy. Also, the EC is the world’s largest aid source and we have been conducting a worldwide program of assistance to Third World countries. On the whole, I hope we have been creating expanding opportunities and expanding sources of economic aid. This is the big excitement in the world today: Our philosophy is winning.
Sidney Reso (Exxon Company International): Most of us who work with all the countries in Europe encounter the dynamic in Brussels of the Council of Ministers supporting market solutions. The Ministers who favor a centralized control method of solving problems look at Parliament as just kind of being there as a perk. What do you see as the dynamic that’s going to change or solve this obvious difference in opinion?
Howe: The combined dynamic of the EC comes from the Commission, the European Parliament, and the Council of Ministers representing the nation states. On the whole, we in the U.K. have been able to introduce to the Council of Ministers a more effective free-market dynamic with respect to the last decade. And the whole 1992 agenda has arrived largely because of our input of liberal economic thinking. We’re not alone. The Germans and the Dutch agree on their good days. (We have our bad days as well.) But we’ve been able to place on their agenda, for example, liberalization of air and road transport. We have been making headway on that through the Council of Ministers, supported by the advocacy of British members of the European Parliament, and firmly backed by the EC. It’s a strange and unique institutional arrangement. I’m determined to eschew those who put this into absolutist terms and say: “Are you for a federal Europe? Are you determined to uphold the sovereignty of nation states?” The EC is a totally new institution, propelled by our sense of collective international responsibility and our shared determination to create new opportunities.
I remember meeting George Shultz at the London Summit in the 1980s. We were having a talk at the dinner table with the French, German, Italian, Canadian, and Japanese foreign ministers about how this thing works, and he said, “Gee, you’re talking about a whole different structure.” And I said, “No, we’re talking about a new, different, unique structure, where the rulings of the new European Court apply throughout the member states within their jurisdiction. And we in the U.K want that to happen to stop the French or the Germans or the Italians from unfairly subsidizing industries.” It’s quite impossible to identify what it is that makes it all tick. We are determined that the 12 countries in the Community shall be powerful, effective participants with the U.S. and Japan on a world liberal economic stage. We’re far more effective together than we would be separately.
Sir Ronald Halstead (British Steel): Regarding competition policy and the division of responsibility between Brussels and the U.K., where do you see the future of the balance, when it comes to dealing with competition policy, in mergers and acquisitions, in those states of the European Common Market?
Howe: What we’ve been trying to do in Europe is to have some areas in which the Commission will regulate competition policy and other areas that are subject to national control. There are large competitive sectors that are appropriate to liberalization at the continental level and others only at the national level. It’s much too soon to know if it will work well or not.
But at least it is better than having a mishmash of 12 independent, competing structures with a thirteenth imposed on top of them.
Sir James Blyth (Boots Co.): Japan now accounts for between 30 percent and 40 percent of world equity market values, while the U.S. has moved from 55 percent in 1980 to some 28 percent in 1990. Many Germans suspect that the economic migration that has already started from East to West Germany will impose a heavy economic burden on West Germany over the next three to five years. How then does the EC plan to combat the use of that huge Japanese liquidity machine over the next five to ten years?
Howe: If anything is for sure, it’s the success of the Federal Republic, with or without the DDR. In the U.K., we too have been succeeding over the last decade. But we have an enormously long way to go yet to fully match West Germany.
The Community provides a setting for us to do that. Our central task is to promote a quality form of manufacturing in Britain that begins to match our most successful competitors. The shadow of that shortcoming in manufacturing hovers over the U.S. as well.
Halstead: We must all remember that Geoffrey in his first budget abolished price control, wage control, and exchange control. It’s the most dramatic change ever to occur in the economy in this country and it set the pace. We must compliment Geoffrey for being so courageous. No one believed he would do it, even though he said he would. This was truly a remarkable feat of yours, Geoffrey, and certainly set this country on the course of economic recovery.
Howe: Let me just add one thing that I don’t think we’ve touched on at all, which is still the most striking example of protectionism. And that’s in the field of agriculture. It’s the worst example of the sustainment by tax finance protectionism of artificial economic activity of all. And yet we do need to maintain the health of our rural communities.
More resources are wasted by the maintenance of agriculture protectionism generating surpluses, which are dumped on world markets to the destruction of the primary producer-peasants and Third World countries-than in almost any other way. We need to do something to provide an economically productive alternative use of the country acreage, one that doesn’t sustain our absurd agricultural policy. And it is just as important in the U.S. and Japan as it is in the U.K.
THE EUROPEAN MONETARY SYSTEM
Ambassador Bernard Vernier-Palliez (Case Poclain): Do you think Britain should have joined the European Monetary System, and would it have spared Britain some problems?
Howe: I’m not going to rewrite history. But I have had no doubt about the importance of managing exchange rates for a number of years. The Bretton Woods System brought an enormous expansion of world economic prosperity. And as we try to reconstruct the framework of economic order, it will become increasingly clear that currency stability should be part of it.
As far back as the economic summits in 1982 and 1983, we found nations beginning to reach out on the re-creation of currency stability. I remember being impressed by a speech made by Arthur Burns in 1974, in which he argued that we needed to reestablish an international relationship something like the rule of law. I rather hoped that could have led to the more successful establishment of a compact among the leading nations of the world.
Looking from the point of view of a business audience, I’ve always thought that the business community looks to political economic managers for two things: stability of domestic currency and as much stability as possible in terms of international exchange rates.